China’s insurers are on the frontline of government efforts to arrest plunging stock prices after the market entered a technical bear market on June 29.
It might be a one-way ticket as these insurers can only be net buyers of stocks and cannot make a quick exit if necessary.
This may hinder their ability to manage risk, especially as the industry is undergoing a solvency regime change that fosters risk-based assessment of insurers’ operations and investments.
Since the end of June, insurers have poured at least 112 billion yuan (US$18 billion) into stocks and equity funds.
They held about 1.66 trillion yuan worth of stocks and equity funds in May.
The change in regulations allows insurers to invest as much as 10 percent of their assets in a single blue-chip stock compared with 5 percent before.
Also, the overall limit on stocks and equity funds has been raised to 40 percent of assets from 30 percent, provided the extra room is for blue-chip stocks.
The industry cap was at around 15 percent in May.
PICC Group (01339.HK), China’s largest non-life insurer, took advantage of the change a day after the July 8 announcement by raising its stake in Industrial Bank which made up about 6 percent of the insurer’s total assets as of December.
Insurers are also affected by a securities rule that bans shareholders with 5 percent ownership or more from selling in the next six months.
Some insurers such as Anbang Insurance, Sino Life (08296.HK) and PICC have notable stakes in banks and developers while others including China Life (02628.HK), Ping An (02318.HK) and CPIC (02601.HK) appear to have more diversified portfolios.
The views expressed in this article are those of Steven Lam, an analyst at Bloomberg Intelligence.
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